Use reverse mortgage for long-term care or insurance?

Q: I'm thinking about using a reverse mortgage as a way to pay for long-term care, if needed, instead of paying premiums on a long-term care insurance policy that I may never use. I don't have a mortgage, and my home is worth $500,000. I'm 66, my wife is younger than me, and we are relatively healthy with family history of longevity. We don't have anyone to leave our home to. We already have the funds to pay for one to two years in a nursing home, but the reverse mortgage loan would certainly reduce the amount of our own funds we might need for such a placement. FYI: I worked for many years in the nursing home industry, and I know that most nursing home residents do not survive for much more than a year. — Alan Rubin, Wading River, N.Y.

A: The answer you get to this question depends on whom you ask. Reverse mortgage experts will say one thing: Yes. Long-term care insurance experts will say another: No. And fee-only fiduciaries will likely detail the pros and cons to your plan, the trade-offs and some alternatives.

Let's start with a reverse mortgage expert. "Reverse mortgages are a great way to pay for long-term health care," says Colette Gray, a senior loan officer with Home Safe Reverse Mortgage in Los Angeles area and blogger at The Reverse Mortgage Guide.

What do long-term care experts have to say? You can certainly use a reverse mortgage to pay for long-term care, and your plan may very well work, says Tobe Lynn Gerard, a certified long-term care specialist. But there are "just too many unknowns" and assumptions, she says.

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What to do then? Experts including Harley Gordon, president of the Corporation for Certification for Long-Term Care, in Durham, N.C., suggest using the funds you now have earmarked to pay for long-term care, if you need it, and buying a combination — life/long-term care — insurance policy, perhaps with a one-year waiting period. Also, apply for the reverse mortgage, but use it only in the case of emergencies.

And here's what the folks at the National Reverse Mortgage Lenders Association had to say: "If you take a Home Equity Conversion Mortgage (HECM) — the FHA-insured reverse mortgage — and establish a line of credit, and then only draw on it when you have in-home care expenses, the unused line of credit will continue to increase over time and you will only accumulate interest on what you have used. In some instances, this approach might make more sense than paying premiums on a long-term care policy."

Ultimately, there are only a few ways to pay for long-term health care expenses, including nursing home costs: You can fund this expense with assets (including a reverse mortgage) and income; insurance in combination with self funding; and Medicaid.

Bottom line: "I think he should be discussing this with his financial adviser to weigh all of the options that he has to see if a reverse mortgage is truly the best way to go," says Gerard.

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Also visit www.longtermcare.gov for information on paying for long-term care expenses, and check out the federal resource Home Equity Conversion Mortgages for Seniors for information about reverse mortgages.

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Emailrpowell@allthingsretirement.com.

Reverse mortgage requirements

Borrowers must:

• Be 62 years of age or older
• Own the property outright or paid-down a considerable amount
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
• Participate in a consumer information session given by a HUD- approved HECM counselor

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

• Single family home or 2-4 unit home with one unit occupied by the borrower
• HUD-approved condominium project
• Manufactured home that meets FHA requirements

Financial Requirements

• Income, assets, monthly living expenses, and credit history will be verified.
• Timely payment of real estate taxes, hazard and flood insurance premiums will be verified

Source: U.S. Department of Housing and Urban Development